US court allows SEC to proceed with charges against Coinbase

SEC vs Coinbase: A federal judge in Manhattan has given the green light for the US Securities and Exchange Commission's lawsuit against Coinbase to proceed, albeit with some modifications. While dismissing one claim made by the regulator, US District Judge Katherine Polk Failla upheld much of the SEC's case, suggesting alignment with the regulator's stance on cryptocurrency regulation.

Coinbase, the largest cryptocurrency exchange in the United States, experienced a slight decline in its shares, down approximately 1.5 per cent following the announcement. Despite this setback, Coinbase's Chief Legal Officer, Paul Grewal, expressed confidence in the exchange's legal position, vowing to contest the SEC's allegations.

The SEC, on the other hand, welcomed the court's decision, highlighting the continuity of established legal frameworks in identifying securities, reinforcing its oversight role in this domain.

The lawsuit, initiated by the SEC in June, accuses Coinbase of facilitating trading in several crypto tokens without proper registration, alleging violations of securities laws. While the court allowed most of the lawsuit to proceed, it dismissed the SEC's claim regarding Coinbase's status as an unregistered broker through its wallet application.

The legal battle marks a pivotal moment in the SEC's regulatory efforts concerning digital asset companies. Employing established legal precedents, including the "efforts of others" test, the SEC aims to subject crypto assets to the same regulatory scrutiny as traditional securities.

In her ruling, Judge Failla acknowledged the SEC's plausible claim that certain digital assets listed on Coinbase may indeed qualify as securities. This decision aligns with previous court rulings favouring the SEC's interpretation of securities laws in the context of cryptocurrencies.

Unlike commodities, securities necessitate registration with the SEC, accompanied by comprehensive disclosures to inform investors of potential risks.

(With Reuters inputs)